Markets & Finance

Stocks Rally on Rebound Hopes

April 02, 2009

Investors were cheered a loosening of the mark-to-market accounting rule and an increase in factory orders. The G20 meeting also boosted sentiment

U.S. stocks closed sharply higher Thursday as investors' hopes for an economic rebound continued to grow. Stoking that optimism: A loosening of the mark-to-market accounting rule used by banks, economic stimulus pacts reached by leaders of the G20, and better-than-expected U.S.

factory orders data. Also, automakers saw glimmers of hope in the March sales figures released Wednesday.

On Thursday, the 30-stock Dow Jones industrial average finished higher by 216.48 points, or 2.79%, at 7,978.08. The blue-chip benchmark had traded above 8,000 for much of the session.

Friday brings the March U.S. nonfarm payrolls report, which is expected to show lingering weakness in the job market. Payrolls are expected to drop another 650,000 in March, according to the median forecast of economists compiled by Action Economics. The unemployment rate is expected to rise to 8.5% from 8.1% in February.

While investors' optimism appeared to be strengthening Thursday, there was another sobering reminder of the depth of the current recession: Weekly initial jobless claims rose 12,000 to 669,000, and continuing claims

rose to record 5.73 million level. Meanwhile, February factory orders rose 1.8%, the first positive reading since September.

World leaders plan to increase international aid by $1.1 trillion to cushion the deepest global recession since World War II and agreed to tighten oversight of the financial industry, a draft of their statement said. The leaders from the Group of 20 nations, meeting at a summit in

London today will channel $750 billion to the International Monetary Fund, $100 billion to the World Bank and provide another $250 billion in trade finance, the draft said. All hedge funds will have to register with a national regulator, Blomberg News reported.

The nations, which account for 85% of the global economy, narrowed differences after German Chancellor Angela Merkel and French President Nicolas Sarkozy sparred with President Barack Obama and British Prime Minister Gordon Brown over how to avoid repeating the financial market collapse that caused the recession. At the top of the agenda is a regulatory framework to rein in risky trading practices and executive pay.

The European Central Bank shocked financial markets by cutting its main interest rate by a smaller-than-expected 25 basis points, taking it to a new low of 1.25%. The ECB also lowered its overnight deposit rate -- the rate currently setting the floor in money markets -- by 25 points, taking this down to just 0.25%.

The Financial Accounting Standards Board, pressured by U.S. lawmakers and financial companies, voted to relax fair-value rules that Citigroup (C) and Wells Fargo (WFC) say don't work when markets are inactive, according to a Bloomberg News report. The changes approved today to fair-value, also known as mark-to-market, allow companies to use "significant" judgment in valuing assets to reduce writedowns on certain investments, including mortgage-backed securities. Accounting analysts say the measure, which can be applied to first-quarter results, may boost banks' net income by 20% or more.

FASB's directives on mark-to-market still seem "clear as mud, though this could provide some loopholes for banks and corporations attempting to claw their way back to health," says Action Economics.

U.S. factory orders rebounded 1.8% in February, following a revised 3.5% decline (was -1.9% initially and -3.3% subsequently). This is the first non-negative print since September. Durable orders were revised up a bit to 3.5% from the 3.4% print in the advance report. Excluding transportation, factory orders rose 1.6%. Nondefense capital goods orders excluding aircraft rebounded 7.1% after cumulative declines of over 18% the prior two months. Factory shipments dipped 0.1%. Inventories dropped 1.2%, posting a 6th straight decline. The inventory-shipment ratio slipped to 1.45 from 1.46. It was 1.21 in July.

The headline figure was a little better than expected, notes Action Economics, but there were some big revisions to the prior month's data.

U.S. initial jobless claims rose 12,000 to 669,000 in the week ended Mar. 28, from an upwardly revised 657,000 the week before (was 652,000). This brought the four-week moving average to 656,750 versus 650,250 previously. Continuing claims climbed another 161,000 to 5,728,000 for the Mar. 21 week, compared to a revised 5,560,000 the week before. That's another record high.

Talk on the Street is for a possible nonfarm payrolls decline of 700,000 or more in Friday's March employment report from the Labor Dept., acccording to Action Economics.

Despite reporting another major sales decline in March, auto makers expressed a rare bit of optimism Wednesday, saying they see signs the industry's downturn might be near bottom and a recovery could be starting. The Wall Street Journal reported Thursday that all the big car makers suffered sales declines of 36% or more compared to March 2008.

Industrywide, U.S. sales totaled 857,735 cars and light trucks, down 37% from a year earlier, according to Autodata Corp. But that's up from 688,909 vehicles sold in February and was the highest total since September. February's sales were down 41% from a year earlier. The annualized sales pace, a closely watched indicator, came in at 9.86 million vehicles, well below the 16 million or more the industry typically logged a few years ago, but up from February's pace of 9.12 million.